How to get a lower interest rate on a new home.

Yes. You can get a lower rate. 
 
The question Dusty and I were most often asked as realtors used to be “How’s the market?” now it’s “what’s happening with interest rates?” As of the date of this writing the answer is “not much.”
Rates have hung out in the high 6’s with little blips into the 7’s for quite a few months now. They are much lower than they have been but, many buyers are waiting until they drop to take the leap into homeownership. 
You don’t have to wait. You can get a lower rate now. Here's an overview of the most effective options:
 

🏷️ 1. Mortgage Rate Buydowns

A buydown is a financing technique where you pay an upfront fee to reduce your mortgage interest rate temporarily or permanently. 

🔹 Permanent Buydowns (Discount Points)

This is the lowest risk option. 
By paying discount points upfront (costing typically 1% of the loan amount per point), you can reduce your interest rate for the life of the loan. Each point usually lowers the rate by 0.125% to 0.25%. This can be paid by the buyer or seller or a combination of both. 

 A rock star credit qualified (Like 740 and above) customer on a $1,000,000 purchase with 20% ($200,000) down would qualify for 6% seller concessions. It would cost about $28,000 to move from a rate of 7.00 % to 6.00% saving the buyer over $500 a month on their payment. Now we’re talking! Buying twice that for a 5% rate would lower the payment over $1000.00 a month. It’s a lot of money up front to do that and lending institutions have different maximums on how much you can buy down. 
 

🔹 Temporary Buydowns2-1 Buydown:

Reduces the interest rate by 2% in the first year and 1% in the second year before reverting to the original rate.
3-2-1 Buydown: Offers a 3% reduction in the first year, 2% in the second, and 1% in the third year.

Temporary Buydowns must be paid by the seller. These are often used to ease into mortgage payments on a short-term basis. If you’re thinking of using this and waiting for rates to drop to refinance, then keep in mind there is a risk rates won’t come down before the end of the buydown and you could be stuck with a higher rate than you’re comfortable with. 
 

🔄 2. Adjustable-Rate Mortgages (ARMs)

ARMs offer a lower initial interest rate that adjusts periodically based on market conditions. For example, a 5/1 ARM has a fixed rate for five years, then adjusts annually. This can be beneficial if you plan to move or refinance before the rate adjusts. The advertised interest rates on most ARMs already include rate buy downs. Things do change often in this industry so check with us before excluding this option. 

Builders offer lower rate in house financing

🤝 3. Builders Offer Lower Rates

Larger builders use combinations of bulk buying mortgages with buying points and sometimes ARMS to package some amazing rates. Today we saw one builder offering a 3.875% on FHA and VA loans and several were offering rates ranging from 4.25% on an ARM to 5.99% conventional. They do this by buying down points like we discussed in section 1. These offerings change often so call us for more up-to-date information. 
To be clear, there are a ton of disclosures that go with these low rates as they do have requirements to qualify. 

Pay now and save later

📉 4. Plan for Future Refinancing

If current rates are high, consider accepting them temporarily with the intention to refinance when rates drop. This strategy, often referred to as "marry the house, date the rate," allows you to secure the home now and improve your mortgage terms later. 
Some buyers need a lower payment now. Others can tighten the straps for a while until the rates do improve. Here is an example of the cost difference between a permanent rate buy down and a refinance on an $800,000 home. 
We will assume the taxes are $8000 a year, insurance is $200 a month, credit score is 800 and loan is conventional with 20% down and a 30-year loan term. We will also assume a cost of $5000 for a refinance. This varies greatly from one lender to another and may be different in 3 years. This is just an example. 

Sample 1. Permanent Buydown
Rate 6.75
Buydown 3 points equal to .75% Lowering the rate to 6.00
Payment $4704
Closing Costs $18,747
Rate Buydown Cost $24,000.
 
 
Sample 2. Date the rate now and refinance later.
Rate 6.75
Monthly PITI Payment. $5071
Closing Costs $18,977
Refinance Cost $5000.00
Cost difference of 3 years payments at higher rate. $13,212
Refinance cost added to payment difference equals total cost difference $18,212
 
In Sample 1. You can enjoy a lower payment from the first payment and the lower payment will help your buying power.

In sample 2, you save almost $6000. But you will need to refinance in the future and make a higher payment now.
 
We could certainly do a deep dive into a ton of different situations but let’s save that rabbit hole for another day. For today we just need to know that these numbers will be different for each buyer and each home so consult with your mortgage professional for a clear understanding of your personal options. 
 

🏘️ 5. Explore First-Time Homebuyer Programs

Many federal, state, and local programs offer reduced interest rates or down payment assistance to first-time buyers. In Washington State, the Washington State Housing Finance Commission provides such programs.

 
Each of these options has its own set of advantages and considerations. It's essential to evaluate your financial situation, long-term plans, and market conditions to determine the best strategy for you. Jim Rohn had it right when he said;

"If you don't like where you are, move. You are not a tree."

Thank you goes to Jeff Gibson. There’s no way I could have figured this out without him. 
 
Jeff
Gibson
Mortgage Advisor
NMLS #1238034
(360) 535-2413
[email protected]